It appears that the fx world has been flooded with forex brokers claiming that they are ECN brokers but are they really ECN brokers or simply market makers in disguise?. In this article I'll make an effort to provide information as to what the distinction between a True ECN and a market maker ECN really is. People will think that I am crazy by writing this expose but the truth of the matter is I am here to aid my fellow traders by sharing the truth about a few fx brokers who state that they are ECN fx brokers but are really market makers taking on risk against their clients by running what is called a B Book.
So let's commence by explaining the difference between a B Book and what's known throughout the industry as an A Book. Well to keep the definition uncomplicated, forex brokers that run a B Book are those that want to profit from their customers trading losses, essentially they selectively categorise their clients in order to capture the losses incurred by those customers who lose money. A Book clients on the other hand are those who generate profits, so as a way to avoid the forex provider form losing money when the client wins the forex broker will hedge all A Book client orders.
So how does this all relate to ECN forex brokers? Well some ECN brokers are not really ECN brokers but are instead market makers utilising an ECN fx broker price feed by running a B Book behind the scenes. This has naturally led to heaps of of controversy and made traders ask whether or not there really are any true ECN forex brokers out there.
So you do not get fooled by impressive internet sites and promotional material I there are a few checks which you can perform yourself which may help you identify whether your broker is actually a real ECN. Here are the checks that you ought to conduct.
1. Stop order distance from the current market price - True ECN forex brokers will NOT impose a distance stop orders can be placed from the current market price. As all forex trades occur within the True ECN market place the forex broker does not care if you scalp for a few pips here or there. Only fake ECN brokers will impose a minimum stop distance.
2. Trade size limits - A True ECN broker will not place any limit on your deal sizes as in a True ECN environment there is always a buyer and a seller. A Fake ECN fx broker will probably restrict your order sizes as they're taking the other side of the trade, if your trade is just too large they may not be capable of manage their position exposure to you if you make money.
3. Slippage - Slippage can take place in a True ECN environment but it can work for forex traders and against them, meaning that traders can get improved or inferior fills. A Fake ECN broker will only pass on negative slippage NOT positive slippage, they will always keep the positive slippage themselves rather than passing it on to their forex traders.
You should execute these 3 straightforward checks ahead of trading with an ECN forex broker to ensure they are actually a True ECN fx broker not a market maker in disguise. I have performed allot of testing myself and found there are actually a lot of Fake ECN fx brokers in the market place, most of them operate in unregulated jurisdictions.
There is one forex broker that I've found to have the very best True ECN foreign exchange offering around with extremely tight spreads, that forex provider is Australian regulated company IC Markets.
So let's commence by explaining the difference between a B Book and what's known throughout the industry as an A Book. Well to keep the definition uncomplicated, forex brokers that run a B Book are those that want to profit from their customers trading losses, essentially they selectively categorise their clients in order to capture the losses incurred by those customers who lose money. A Book clients on the other hand are those who generate profits, so as a way to avoid the forex provider form losing money when the client wins the forex broker will hedge all A Book client orders.
So how does this all relate to ECN forex brokers? Well some ECN brokers are not really ECN brokers but are instead market makers utilising an ECN fx broker price feed by running a B Book behind the scenes. This has naturally led to heaps of of controversy and made traders ask whether or not there really are any true ECN forex brokers out there.
So you do not get fooled by impressive internet sites and promotional material I there are a few checks which you can perform yourself which may help you identify whether your broker is actually a real ECN. Here are the checks that you ought to conduct.
1. Stop order distance from the current market price - True ECN forex brokers will NOT impose a distance stop orders can be placed from the current market price. As all forex trades occur within the True ECN market place the forex broker does not care if you scalp for a few pips here or there. Only fake ECN brokers will impose a minimum stop distance.
2. Trade size limits - A True ECN broker will not place any limit on your deal sizes as in a True ECN environment there is always a buyer and a seller. A Fake ECN fx broker will probably restrict your order sizes as they're taking the other side of the trade, if your trade is just too large they may not be capable of manage their position exposure to you if you make money.
3. Slippage - Slippage can take place in a True ECN environment but it can work for forex traders and against them, meaning that traders can get improved or inferior fills. A Fake ECN broker will only pass on negative slippage NOT positive slippage, they will always keep the positive slippage themselves rather than passing it on to their forex traders.
You should execute these 3 straightforward checks ahead of trading with an ECN forex broker to ensure they are actually a True ECN fx broker not a market maker in disguise. I have performed allot of testing myself and found there are actually a lot of Fake ECN fx brokers in the market place, most of them operate in unregulated jurisdictions.
There is one forex broker that I've found to have the very best True ECN foreign exchange offering around with extremely tight spreads, that forex provider is Australian regulated company IC Markets.
About the Author:
As forex and IC markets bloom, risk factors increase in proportionation. True ECN are hard to find as fake ones are everywhere. Please visit IC Markets and True ECN brokers here to know more about them.
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